Test bank intermediate accounting 14e by kieso comprehensive exam e

To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com COMPREHENSIVE EXAMINATION E PART (Chapters 18-21) Problem E-I E-II E-III E-IV E-V Topic Long-Term Contracts Installment Sales Method Deferred Income Taxes Pensions Leases Approximate Time 15 20 25 15 25 100 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com E-2 Test Bank for Intermediate Accounting, Thirteenth Edition Problem E-I — Long-Term Contracts Edwards Company contracted on 4/1/12 to construct a building for $2,300,000 The project was completed in 2014 Additional data follow: Costs incurred to date Estimated cost to complete Billings to date Collections to date 2012 $ 560,000 1,040,000 500,000 400,000 2013 $1,350,000 450,000 1,800,000 1,300,000 2014 $1,900,000 — 2,300,000 2,200,000 Instructions (a) Calculate the income recognized by Edwards under the percentage-of-completion method of accounting in each of the years 2012, 2013, and 2014 (b) Prepare all necessary entries for the year 2013 (c) Present the balance sheet disclosures at December 31, 2013 Proper headings or subheadings must be indicated Problem E-II — Installment Sales Method Garber, Inc accounts for all sales of its merchandise on the installment basis Following is the unadjusted trial balance at 12/31/14: Cash Installment Accounts Receivable—2012 Installment Accounts Receivable—2013 Installment Accounts Receivable—2014 Inventory, 1/1/14 Repossessed Merchandise Accounts Payable Deferred Gross Profit—2012 Deferred Gross Profit—2013 Common Stock Retained Earnings Installment Sales Purchases Loss on Repossession Operating Expenses $ 89,200 170,000 400,000 750,000 78,000 22,000 $ 136,000 84,000 175,000 600,000 406,200 1,000,000 738,000 4,000 150,000 $2,401,200 $2,401,200 Additional Data: 2012 Gross Profit Rate = 32%; Inventory 12/31/14 = $159,000; Repossessed merchandise 12/31/14 = $14,000; Merchandise sold in 2013 was repossessed in 2014 and the following entry was prepared (assume correctly): Deferred Gross Profit—2013 14,000 Repossessed Merchandise 22,000 Loss on Repossession 4,000 Installment Accounts Receivable—2013 40,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Comprehensive Examination E E-3 Problem E-II (cont.) Instructions (a) Determine collections during 2014 on Installment A/R for each of the years 2012, 2013, and 2014 (b) Without prejudice to your answer in Part (a), assume that total collections on Installment Accounts Receivable during 2014 were $1,060,000; $220,000 from 2012, $300,000 from 2013, and $540,000 from 2014 Prepare all necessary adjusting and closing entries at 12/31/14 Problem E-III — Deferred Income Taxes In 2013, the initial year of its existence, Dexter Company's accountant, in preparing both the income statement and the tax return, developed the following list of items causing differences between accounting and taxable income: The company sells its merchandise on an installment contract basis In 2013, Dexter elected, for tax purposes, to report the gross profit from these sales in the years the receivables are collected However, for financial statement purposes, the company recognized all the gross profit in 2013 These procedures created a $500,000 difference between book and taxable incomes The future collection of the installment contracts receivables are expected to result in taxable amounts of $250,000 in each of the next two years (Note: the company treats installment contracts receivable as a current asset on its balance sheet.) The company has also chosen to depreciate all of its depreciable assets on an accelerated basis for tax purposes but on a straight-line basis for accounting purposes These procedures resulted in $60,000 excess depreciation for tax purposes over accounting depreciation The temporary difference due to excess tax depreciation will reverse equally over the three year period from 2014-2016 Dexter leased some of its property to Baker Company on July 1, 2013 The lease was to expire on July 1, 2015 and the monthly rentals were to be $60,000 Baker, however, paid the first year's rent in advance and Dexter reported this entire amount on its tax return These procedures resulted in a $360,000 difference between book and taxable incomes (Note: this lease was an operating lease and Dexter classified the unearned rent as a current liability on its balance sheet.) Dexter owns $200,000 of bonds issued by the State of Oregon upon which 5% interest is paid annually In 2013, Dexter showed $10,000 of income from the bonds on its income statement but did not show any of this amount on its tax return (Note: these bonds are classified as long-term investments on Dexter's balance sheet.) In 2013, Dexter insured the lives of its chief executives The premiums paid amounted to $12,000 and this amount was shown as an expense on the income statement However, this amount was not deducted on the tax return The company is the beneficiary To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com E-4 Test Bank for Intermediate Accounting, Thirteenth Edition Problem E-III (cont.) Instructions Assuming that the income statement of Dexter Company showed "Income before income taxes" of $1,200,000; that the enacted tax rates are 40% for all years; and that no other differences between book and taxable incomes existed, except for those mentioned above: (a) Compute the income tax payable (b) Prepare a schedule of future taxable and (deductible) amounts at the end of 2013 (c) Prepare a schedule of deferred tax (asset) and liability at the end of 2013 (d) Compute the net deferred tax expense (benefit) for 2013 (e) Make the journal entry recording income tax expense, income tax payable, and deferred income taxes for 2013 (f) Indicate how income tax expense and any deferred income taxes should be disclosed on the financial statements under generally accepted accounting principles Show the amounts for these items and indicate specifically where they would be disclosed Problem E-IV — Pensions Presented below is information related to Stage Department Stores, Inc pension plan for 2013 Service cost Funding contribution for 2013 Settlement rate used in actuarial computation Expected return on plan assets Amortization of PSC (due to benefit increase) Amortization of unrecognized net gains Projected benefit obligation (at beginning of period) Fair value of plan assts (at beginning of period) $520,000 500,000 10% 9% 90,000 48,000 540,000 360,000 Instructions (a) Compute the amount of pension expense to be reported for 2013 (Show computations.) (b) Prepare the journal entry to record pension expense and the employer’s contribution for 2013 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Comprehensive Examination E E-5 Problem E-V — Leases On January 1, 2013, Foley Company (as lessor) entered into a noncancelable lease agreement with Pinkley Company for machinery which was carried on the accounting records of Foley at $5,436,000 and had a market value of $5,760,000 Minimum lease payments under the lease agreement which expires on December 31, 2022, total $8,520,000 Payments of $852,000 are due each January The first payment was made on January 1, 2013 when the lease agreement was finalized The interest rate of 10% which was stipulated in the lease agreement is the implicit rate set by the lessor The effective interest method of amortization is being used Pinkley expects the machine to have a ten-year life with no salvage value, and be depreciated on a straight-line basis Collectibility of the rentals is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor Instructions (a) From the lessee's viewpoint, what kind of lease is the above agreement? From the lessor's viewpoint, what kind of lease is the above agreement? (b) What should be the income before income taxes derived by Foley from the lease for the year ended December 31, 2013? (c) Ignoring income taxes, what should be the expenses incurred by Pinkley from this lease for the year ended December 31, 2013? (d) What journal entries should be recorded by Pinkley Company on January 1, 2013? (e) What journal entries should be recorded by Foley Company on January 1, 2013? To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com E-6 Test Bank for Intermediate Accounting, Thirteenth Edition Solutions — Comprehensive Examination E Problem E-I — Solution (a) 2012 income = ($560,000 ÷ $1,600,000) × $700,000 = $245,000 2013 income = ($1,350,000 ÷ $1,800,000) × $500,000 = $375,000 – $245,000 = $130,000 2014 income = $400,000 – $375,000 = $25,000 (b) Construction in Process Accounts Payable, Cash, Inventory, etc 790,000 790,000 Accounts Receivable 1,300,000 Billings on Construction in Process (c) Cash Accounts Receivable 900,000 Construction Expenses Construction in Process Revenue from Long-Term Contracts 790,000 130,000 Current assets: Accounts receivable 1,300,000 900,000 $1,000,000 Current liabilities: Billings ($1,800,000) in excess of costs and recognized profit ($1,725,000) $75,000 Problem E-II — Solution (a) Collections in 2014 on installment accounts receivable: 2012 $84,000 ÷ ($170,000 + collections) = 32% Collections equal $92,500 2013 $175,000 ÷ ($400,000 + collections) = 35% * Collections equal $100,000 2014 Installment Sales – Installment Accounts Receivable = Collections $1,000,000 – $750,000 = $250,000 *14,000 ÷ 40,000 = 35% 920,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Comprehensive Examination E E-7 Problem E-II — Solution (cont.) (b) Inventory 12/31/14 Repossessed Merchandise 12/31/14 Cost of Goods Sold Purchases Inventory 1/1/14 Repossessed Merchandise 159,000 14,000 665,000 738,000 78,000 22,000 Installment Sales 1,000,000 Cost of Goods Sold Deferred Gross Profit—2014 (33.5%) 665,000 335,000 Deferred Gross Profit—2012 (32% × $220,000) Deferred Gross Profit—2013 (35% × $300,000) Deferred Gross Profit—2014 (33.5% × $540,000) Realized Gross Profit 70,400 105,000 180,900 356,300 Realized Gross Profit Loss on Repossession Operating Expenses Income Summary 356,300 Income Summary Retained Earnings 202,300 4,000 150,000 202,300 202,300 Problem E-III — Solution (a) The computation of income tax payable is as follows: Pretax financial income Permanent differences: State of Oregon bonds Executive insurance premiums Temporary differences: Installment contracts Excess tax depreciation Lease rental Taxable income Tax rate Income tax payable (b) Future taxable (deductible) amounts: Installment sales Depreciation Unearned rent $1,200,000 (10,000) 12,000 (500,000) (60,000) 360,000 1,002,000 40% $400,800 2014 2015 2016 $250,000 20,000 (360,000) $250,000 20,000 $20,000 Total $500,000 60,000 (360,000) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com E-8 Test Bank for Intermediate Accounting, Thirteenth Edition Problem E-III — Solution (cont.) (c) Temporary Differences Installment Sales Depreciation Rent Totals (d) (e) (f) Future Taxable (Deductible) Amounts $500,000 60,000 (360,000) $200,000 Tax Rate 40% 40 40 Deferred Tax (Asset) Liability $200,000 24,000 $(144,000) $(144,000) $224,000 Deferred tax asset at end of 2013 Deferred tax asset at beginning of 2013 Deferred tax (benefit) $(144,000) -0$(144,000) Deferred tax liability at end of 2013 Deferred tax liability at beginning of 2013 Deferred tax expense $224,000 -0$224,000 Deferred tax expense Deferred tax (benefit) Net deferred tax expense for 2013 $224,000 (144,000) $ 80,000 Income Tax Expense ($400,800 + $80,000) Deferred Tax Asset Deferred Tax Liability Income Tax Payable Income statement Income before income taxes Income tax expense: Current Deferred Net income 480,800 144,000 224,000 400,800 $1,200,000 $400,800 80,000 Balance sheet Current liabilities: Deferred tax liability ($200,000 – $144,000) $56,000 Long-term liabilities: Deferred tax liability $24,000 480,800 $719,200 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Comprehensive Examination E Problem E-IV — Solution (a) Service cost Interest on projected benefit obligation ($540,000 × 10%) Expected return on plan assets ($360,000 × 9%) Amortization of PSC Amortization of net gains Pension expense—2013 (b) Pension Expense 583,600 Other Comprehensive Income (G/L) 48,000 Cash 500,000 Other Comprehensive Income (PSC) 90,000 Pension Asset/Liability 41,600 $520,000 54,000 (32,400) 90,000 (48,000) $583,600 E-9 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com E - 10 Test Bank for Intermediate Accounting, Thirteenth Edition Problem E-V — Solution (a) From the viewpoint of the lessee (Pinkley Company), the lease is a capital lease because the present value of the minimum lease payments ($5,760,000) exceeds 90% of the fair market value of the leased property The lease term also is in excess of 75% of the property's estimated economic life For those same reasons and because of the predictable collectibility, absence of uncertainties surrounding costs yet to be incurred by the lessor, and presence of a dealer's profit, the lease is a sales-type lease to the lessor, Foley Company (b) Profit on sale Interest on outstanding balance ($5,760,000 – $852,000) × 10 Income of lessor in 2012 490,800 $1,054,800 Interest on outstanding balance ($5,760,000 – $852,000) × 10 Depreciation ($5,760,000 ÷ 10) Expenses incurred by lessee in 2012 $490,000 576,000 $1,066,800 (c) (d) (e) $564,000 Leased Equipment Lease Liability 5,760,000 Lease Liability Cash 852,000 Lease Receivable Cost of Goods Sold Sales Revenue Inventory 5,760,000 5,436,000 Cash Lease Receivable 852,000 5,760,000 852,000 5,760,000 5,436,000 852,000 ... agreement? (b) What should be the income before income taxes derived by Foley from the lease for the year ended December 31, 2013? (c) Ignoring income taxes, what should be the expenses incurred... finalized The interest rate of 10% which was stipulated in the lease agreement is the implicit rate set by the lessor The effective interest method of amortization is being used Pinkley expects the... purposes over accounting depreciation The temporary difference due to excess tax depreciation will reverse equally over the three year period from 2014-2016 Dexter leased some of its property